Cameron at the Mercy of European Events

By

Simon Nixon

Oct. 21, 2012 6:10 p.m. ET

Since standing for the leadership of his party, David Cameron has largely treated the question of the U.K.'s relationship with the European Union as a matter of short-term tactics rather than long-term strategy. He won the leadership partly by making promises to hold a referendum on the Lisbon Treaty and to take the Conservatives out of the European People's Party, which his main rival David Davis thought reckless to match. That secured Mr. Cameron the vital support of the extreme euro-skeptic wing of his party. But once elected, he swiftly reneged on his "cast-iron" commitment to a referendum.

That removed an immediate political headache but earned him the enduring suspicion of hard-liners whose overriding political objective has always been to take the U.K. out of the EU.

ENLARGE

U.K. Prime Minister David Cameron holds a press conference on the final day of an EU summit in Brussels on Friday.
Agence France-Presse/Getty Images

Those hard-liners saw their opportunity for revenge last year, threatening to vote against a treaty change to incorporate the euro zone's fiscal pact into EU law unless granted their referendum. Under pressure, Mr. Cameron caved in, concocting a bizarre list of largely implausible demands that gave him a pretext to veto the treaty and so avoid a vote in parliament. With help from much of the U.K. press, this act of political desperation was presented as a diplomatic triumph: it was claimed the prime minister had fended off a naked threat to the City of London in the form of new banking rules and a financial transactions tax, even though neither was on the agenda.

Mr. Cameron's poll ratings soared. By the time the truth started to emerge, the legend had taken hold and Mr. Cameron's party had drawn an important conclusion: that open hostility to the EU, which had contributed to landslide defeats in 1997 and 2001, was now a winning strategy.

This now presents Mr. Cameron with a terrible dilemma. The clamor for a referendum on U.K. membership of the EU from within the Conservative party appears increasingly irresistible. In response, his instinct is to play for time. He is dangling in front of his party the prospect of a future referendum on the basis of a renegotiated relationship between the U.K. and EU. His problem is that even after two decades of Tory wars over Europe during which he has been leader for seven, he still does not have a coherent plan for what this renegotiated relationship might look like.

Earlier this year, he belatedly asked Foreign Secretary William Hague to conduct a review of EU competences from which the government hopes a workable renegotiation strategy can emerge. But this will not report until the end of 2014. The risk is that Mr. Cameron has raised expectations he will not be able to meet, not least because much of his party will settle for nothing less than a U.K. exit.

Mr. Cameron's difficulties are compounded by the nature of modern Tory euroskepticism. A movement forged in the heat of the battle against the single currency has now hardened into a tribal, emotional hostility to the EU itself, fuelled partly by triumphalism at the crisis in the euro zone and a fervent hope the project will fail. What is missing from the debate is recognition that EU membership has been a remarkable success for the U.K.

The EU's greatest achievement—the single market—was a largely British invention and the U.K. has arguably been its biggest beneficiary. The City's modern renaissance largely reflects its emergence as the centre of a pan-European capital market—a process that has further to run as industries consolidate and companies turn to bond markets rather than banks for finance. And the U.K. will continue to be the biggest beneficiary of the development of the single market as it extends to services and the digital economy where the U.K. is strong.

Also missing is any clear idea how a renegotiated relationship with the EU would help address the U.K.'s current economic woes. The EU did not regulate the U.K. banks, inflate its housing market, insist it run deficits during the boom or expand public spending to 50% of GDP. The structural rigidities holding back the U.K. economy—a dire educational system, a broken banking system, a benefits system that creates disincentives to work—are all domestic problems requiring homegrown solutions.

Nor should the proposed euro-zone banking union pose a threat to the U.K. given the EU's commitment to create a voting system that protects the single market. Indeed, the U.K. has been the main advocate of tough new EU-wide rules for financial services. When asked which aspect of EU membership they would most like to see repealed, many Conservative lawmakers point to the working time directive, yet few can explain what the directive actually says, what it is stopping people from doing or what employment protections they would like to see in its place. Meanwhile some cite the European Court of Human Rights, seemingly unaware this isn't even an EU institution.

In recent public statements, Mr. Cameron has indicated he understands the importance of EU membership and his responsibility to defend it. In 10 Downing St., his advisers are not only discussing whether to hold a referendum but also how to win one, says a senior minister involved in the plans. But the weakness of his political position means he cannot rule out leading a campaign to take the U.K. out of the EU if his renegotiation demands are not met.

That puts him in a perilous situation. His hopes for a successful renegotiation rest largely on the belief that the euro zone's only hope of survival lies in full political union and the mutualization of debts. But this may be a miscalculation: Much of the fiscal and banking union needed to resolve the crisis are already in place and much of what remains to be done can probably be done within existing treaties, as it was with the fiscal pact. Even if Mr. Cameron had a radical agenda, the rest of the EU may see no need to indulge him—particularly if, as last December, no U.K. interests are at stake.

Without a strategy, bereft of allies and facing determined opposition within his own party, Mr. Cameron looks increasingly at the mercy of events rather than their master.

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